Introduction
The Calcutta High Court (‘the Court’) recently rendered a decision in the case of Diamond Beverages (P.) Ltd. v. Assistant Commissioner of CGST & CX[i]. The Court allowed the intra-court appeal and set aside the show cause notice (‘SCN’) issued under s. 73(1) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’). The central issue was whether the authority had issued the impugned SCN with due application of mind, taking into account the appellant’s response to the pre-SCN.
Brief Facts
Intra-court appeal was filed by the appellant challenging the order dated 25.09.2023 in W.P.A. 22295 of 2023. In the said order, the appellant had challenged a SCN dated 16.08.2023 issued under s. 73(1) of the CGST Act. The learned Single Bench disposed of the writ petition thereby directing the appellant to submit a comprehensive reply to the SCN, addressing all factual and legal issues with reference to relied upon decisions.
Earlier, the appellants were issued a SCN dated 30.12.2022 alleging certain discrepancies in availing input tax credit (‘ITC’) during the financial year (‘FY’) 2018-19 on supplies whose registration was retrospectively cancelled and claiming credit arising from debit notes issued by suppliers who did not file GSTR3B returns during FY 2018-19.
The appellants were therein granted a 30-day period to submit their response. The appellants complied by providing the required information on 10.02.2023 during which they also noted that essential details were not included.
Thereafter, the Assessing Authority (‘AA’) issued another notice dated 01.03.2023 and purported to have enclosed relevant details. Thereafter the appellants submitted their reply to the notice of intimation of discrepancies on 13.03.2023.
Subsequently, the AA issued a pre-SCN dated 31.03.2023 in Part A of Form GST DRC-01A, reiterating the allegations mentioned in the notices intimating discrepancies. The appellants were advised to settle the determined tax amount. Failure to comply would result in the issuance of a SCN under s. 73(1) of the CGST Act.
The appellants submitted their reply to the pre-SCN on 11.04.2023, once again providing comprehensive factual details. Additionally, the appellants sought an opportunity for a personal hearing to explain their case. The appellants further urged the AA to conduct an inquiry at the supplier’s end, specifically addressing the accusation of the supplier’s registration being cancelled retrospectively. The appellants also emphasized the necessity of investigating the allegations related to whether the suppliers had filed returns for the relevant FY.
Despite the appellants’ submissions, the AA, without conducting any investigation or inquiry, proceeded to issue the impugned SCN on 16.08.2023 under s. 73(1) of the CGST Act.
Held
The Court allowed the appeal and set aside the impugned SCN, remanding the matter back to the adjudicating authority to the stage of the pre-SCN dated 31.03.2023. It was held that the AA had merely extracted the appellants’ submissions without addressing specific contentions raised by them and that such a lack of consideration indicated that the SCN dated 16.08.2023 was issued without due application of mind.
The Court relied on the decision of the same court in the case of Suncraft Energy Private Limited & Anr. v. The Assistant Commissioner, State Tax, Ballygunge Charge & Ors.[ii], wherein the circumstances were similar, and the Court had allowed the appeal, thereby overturning the orders issued by the AA.
The Court held that interference at the SCN stage is rare but justified in exceptional circumstances such as when the notice is issued without jurisdiction or suffers from perversity. However, the Court was convinced in this case that the impugned SCN was issued without due consideration, overlooking the submissions of the appellant to the pre-SCN, and neglecting to conduct an inquiry or investigation at the supplier’s end. Hence, the Court deemed it necessary to intervene, as this case fell within the exceptional circumstances warranting the Court’s exercise of jurisdiction to set aside a SCN.
Analysis
This judgment highlights the Court’s dedication to upholding due process and meticulous consideration in GST proceedings. The decision to set aside the impugned SCN emphasizes the importance of thorough application of mind by the authorities, particularly by addressing the contentions raised in the parties’ submissions to pre-SCNs.
In essence, this case establishes a precedent advocating for transparency, fairness, and a discerning approach in the enforcement of GST laws. It asserts that legal proceedings should be conducted with utmost diligence while respecting the rights of the assessees. The case reinforces the principle that exceptional circumstances, such as the lack of proper consideration and investigation, warrant judicial intervention. This ruling serves as a poignant reminder to tax authorities, urging them to conduct comprehensive inquiries and address specific concerns raised by assessees during the adjudication process.
End Notes:
[i] [2023] 157 taxmann.com 479 (Calcutta)[15-12-2023]
[ii] 2023 SCC Online Cal. 2226
Authored by Pratima Ajmera, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.